Manhattan U.S. Attorney and FBI Announce Charges Against New York Accountant in Connection with the Fraud at Bernard L. Madoff Investment Securities
|U.S. Attorney’s Office September 26, 2013|
Preet Bharara, the United States Attorney for the Southern District of New York; George Venizelos, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI); Cheryl Garcia, the Acting Special Agent in Charge for the New York Regional Office of the U.S. Department of Labor’s Office of the Inspector General, Office of Labor Racketeering and Fraud Investigations (DOL-OIG); and Jonathan Kay, the Regional Director for the New York Regional Office of the United States Department of Labor, Employee Benefits Security Administration (DOL-EBSA) announced that Paul J. Koningsberg was arrested today for his role in the scheme to falsify books and records at Bernard L. Madoff Investment Securities (Madoff Securities), through which Bernard L. Madoff ran his multi-billion-dollar Ponzi scheme. Koningsberg was also charged in connection with his role in creating a fictitious, no-show job through which a co-conspirator received hundreds of thousands of dollars in compensation from Madoff. Koningsberg was presented in Manhattan federal court this afternoon.
Manhattan U.S. Attorney Preet Bharara said, “As alleged, Paul Koningsberg threw aside his ethical duties as an accountant in favor of his role as a false bookkeeper, which included allegedly participating in a scheme of back-dating client account statements to show fictitious trades and conjuring profits and losses of millions of dollars. With today’s indictment, he will be made to answer for his alleged conduct as yet another player on Madoff’s team.”
FBI Assistant Director in Charge George Venizelos said, “Sadly, as is often the case in a financial fraud, there was someone to help ‘cook the books’ in the Madoff scheme. Paul Koningsberg was arrested by FBI agents for his alleged role in the multi-billion-dollar Ponzi scheme run by Bernard Madoff. Koningsberg allegedly falsified books and records and created a no-show job so a co-conspirator could receive thousands of dollars in compensation. The FBI will continue to investigate and arrest those involved with the Madoff scheme in an attempt to bring some justice to the victims of this devastating fraud.”
DOL-OIG Acting Special Agent in Charge Cheryl Garcia said, “Today’s arrest highlights our commitment to work with our law enforcement partners to investigate those who allegedly defraud employee benefit plans and seek to conceal their crimes by falsifying documents required by the Employee Retirement Income Security Act.”
DOL-EBSA New York Regional Director Jonathan Kay said, “Accurate reporting is an essential part of maintaining employee benefit plan integrity. EBSA’s efforts in this case exemplify our commitment to protecting employee benefits and working in coordination with fellow federal agencies.”
In a separate action, the United States Securities and Exchange Commission (SEC) announced civil charges against Koningsberg.
According to a superseding indictment unsealed today in Manhattan federal court:
Koningsberg, a lawyer and certified public accountant, was the senior tax partner of Koningsberg Wolf & Co. P.C. (Koningsberg Wolf) and a minority shareholder of Madoff Securities International Limited (Madoff International), Madoff’s London-based affiliate. Koningsberg was the only person outside the Madoff family to hold an ownership interest in either Madoff Securities or Madoff International.
Beginning in at least the early 1990s, Madoff began to steer many of his investors towards Koningsberg’s accounting practice, particularly certain long-time investors in whose accounts Madoff executed the most glaringly fraudulent transactions. By December 2008, when Madoff’s scheme collapsed, Koningsberg Wolf provided accounting services in connection with more than approximately 300 Madoff Securities accounts. As their accountant, Koningsberg typically received duplicate copies of his client’s Madoff Securities account statements and sometimes the only copy.
After the death of one long-time Madoff client—who had recruited investors and had been promised by Madoff corresponding annual commission payments in the form of guaranteed returns—Madoff encouraged the client’s widow to use Koningsberg as her accountant. Koningsberg, Madoff, and Frank DiPascali, Jr.—who pled guilty to his role in the fraud and is cooperating with the government—agreed on an investment “strategy” for the widow’s account. Under the strategy, the widow’s money would be “invested” in United States Treasury bonds and cash equivalents for the first 11 months of each year and then in December, DiPascali would fabricate back-dated options trades in order to generate the promised returns. For instance, one of the widow’s accounts was invested in treasuries and money market funds in January through November 2003, resulting in net equity at the end of November 2003 of approximately $860,000. In January 2004, however, DiPascali back-dated fake options trades purportedly executed in December 2003 to generate an additional approximately $825,000, nearly doubling the value of the account. Each December, over the course of several years, Koningsberg spoke with DiPascali to ensure that DiPascali arranged for the back-dated trades necessary to ensure the widow’s promised returns.
Similarly, in May 2003, Koningsberg requested that another co-conspirator who worked at Madoff Securities (CC-1) create back-dated trades in a second client’s account, retroactive to December 2002, in order to generate losses for tax purposes. A Madoff Securities worksheet reflecting the specific composition of the back-dated trades bears the notation “Paul OK’d this,” and an associated note reads, “Jan losses were for 2002 Tax & were put on in May 2003.” The Madoff Securities computer system confirms that in May 2003, CC-1 back-dated the precise trades that “Paul OK’d” to December 2002.
From time to time, moreover, Madoff “amended” the holdings of certain of his oldest clients, replacing statements reflecting one set of securities with revised statements, for the exact same time period, reflecting entirely different holdings and values. Because the existence of multiple, vastly different account statements for the same time risked exposing the fraud, Madoff could only ask certain trusted clients to return their statements in favor of the amended ones. Because Koningsberg serviced many of Madoff’s most important accounts, he frequently returned statements in favor of the amended ones. For example, in late 2002 or early 2003, Koningsberg sent back an entire year’s worth of statements for one client in favor of new ones. The new statements reflected millions of dollars in additional profitable trading activity for the client. Likewise, in 2008, Koningsberg sent back several months’ worth of statements for a different client in favor of new ones reflecting millions of dollars in losses.
In addition to being paid for his accounting services by the dozens of clients referred to him by Madoff, for over a decade, Koningsberg also received payments directly from Madoff Securities of approximately $15,000 to $25,000 per month for Koningsberg’s work in connection with one client in particular. That client, one of Madoff’s oldest and largest, deposited and withdrew tens of billions of dollars into Madoff Securities over the years, and Madoff executed glaringly fraudulent trades in his accounts, such as back-dating an entire year’s worth of statements into accounts that did not previously exist.
Beginning in approximately 1992, Madoff offered Koningsberg, the defendant, an additional cash payment of approximately $20,000 per year. Rather than receiving this money in the form of trading profits, Koningsberg instructed Madoff to pay a relative of Koningsberg’s (“CC-2”) who had previously worked at Madoff Securities. CC-2 received salary, health, and retirement benefits from Madoff Securities, despite the fact that in recent years, CC-2 earned hundreds of thousands of dollars at an overseas hedge fund. Between approximately 1992 until December 2008, CC-2 received more than approximately $320,000 in cash compensation on account of CC-2’s “no show” job at Madoff Securities, plus health and retirement benefits to which CC-2 was not entitled.
Koningsberg, 77, was arrested in New York, New York. He is charged in two counts of conspiracy, one count of falsifying the books and records of a broker-dealer, one count of falsifying the books and records of an investment adviser, and one count of making false statements in a document required to be kept by ERISA. He faces a maximum sentence of 40 years in prison. He is also subject to mandatory restitution and criminal forfeiture and faces criminal fines up to twice the gross gain or loss derived from the offense.
Mr. Bharara praised the work of the FBI, the DOL, and the Internal Revenue Service-Criminal Investigation. He also thanked the SEC.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Matthew L. Schwartz, Randall W. Jackson, John T. Zach, and Christopher D. Frey are in charge of the prosecution.
The charges contained in the indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
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